Indian start-up space attracting new venture capital investors

Participation from local corporates is being seen in these funds, a validation of growing investor confidence. Photo: Hemant Mishra/Mint

Mumbai: Almost half-a-dozen first-time venture capital investors have made their debut since the beginning of this year, indicating growing investor interest in India’s start-ups.

Some such investors include Montane Ventures, an early-stage venture capital firm that counts Ajay Piramal’s family office as its lead investor; 021 Capital, founded by Sailesh Tulshan, the personal investment adviser to the Flipkart’s Bansals; Fundamentum, a mid-stage venture fund backed by Infosys Ltd co-founder Nandan Nilekani and Helion Ventures founder Sanjeev Aggarwal; and Leo Capital, an early-stage technology fund.

Others such as Jadevalue Fintech, the investment arm of Chinese unicorn CashBUS; Emery Capital, a Russian venture capital management company that invests in early-stage start-ups; Yesss CAPITAL, an early-stage seed fund focusing on technology, energy and entertainment start-ups in North America, Europe and the developing world, are also on the list.

Interestingly, participation from local corporates is being seen in these funds, a validation of growing investor confidence.

“The reason why we are seeing more new domestic investors is because of the teams of existing funds that are splitting up and are starting their own fund. It’s a macro underperformance of these funds in the last 10 years that has led to the breakdown of teams which is why we are witnessing newer teams with fair investing experience. Other set of people are those who have rich family offices and high net worth individuals (HNIs) who are ready to back venture funds for funding start-ups,” said Anand Lunia, co-founder and partner at India Quotient.

What also bodes well for the ecosystem is the realization that local start-ups can create value even if they have to compete with global behemoths.

“Time is always right. We are happy to see lot of activity around venture investments. Companies have grown and are creating value. Home-grown businesses are standing well against deep-pocket companies and can create value for its investors and that’s why more and more risk capital is coming in various stages of cycle,” said Pankaj Naik, co-head, digital and technology investment banking, Avendus Capital, a boutique investment bank.

According to Naik, the increased activity in series C investments has encouraged early-stage investments.

To be sure, the venture investment in the first quarter of 2018 was almost 29% lower than the immediate previous quarter—which had witnessed $5.2 billion being invested across 152 transactions, according to the data from private deal tracker Venture Intelligence.

“People who are into angel investing mostly have now raised funds worth Rs100-150 crore in order to make it more institutionalized seed-stage investment. They are seeing liquidity in terms of fund raise and the activity has changed positively from series C onwards. The environment is much better now compared to six-eight months ago. Our unit economics has become stronger for market leaders and the activity has picked up quite significantly,” Naik added.

If anything, the recently concluded Walmart-Flipkart deal will only add fuel to the fire, experts say.

“I see the Flipkart-Walmart deal as a great representation of Indian venture community where a strategic investor has given very good exits to Flipkart’s existing investors. The limited partners (LPs) abroad generally ask about the measurable exits in India which are very few in number. This deal has put exits in the front page. It is a positive sign from every perspective. At the end of the day, Flipkart story was a journey. We should not forget the whole journey of Flipkart and should not just focus on outcome. One should not chase capital. It takes 8-10 years to build a valuable company,” said Arihant Patni, managing director of Ideaspring Capital, an early-stage venture fund.

“The deal shows a good signal. More of growth stages investments by such investors will lead to trickle-down effect for early stage ones,” said Vinay Singh, founding member, partner, Fireside Ventures, but was soon to add a voice of caution. “But the real joy will come when a large number of such things start to happen. Some of the mid-market deals will start happening now so that there is some depth and liquidity in the market. It’s a good start in my view, however; investors are still making cautious bets.”